State to end sales tax on interest paid on store-financed merchandise

Toting the note just got easier for Mississippi car dealers and other merchants who finance their customers’ purchases.

Gov. Phil Bryant’s signing of House Bill 260 Tuesday puts a July 1 end to sales taxes on interest and other finance charges at buy-here-pay-here retail locations, including auto dealerships and furniture and appliance stores that arrange installment payments on items they sell

The signing marked an end to a 20-year effort by state Rep. Mark Formby. The Picayune Republican said he introduced versions of HB260 over the last couple decades. In some years the bills gathered steam only to come up short in the end.

“About 1996, I had 87 co-authors, with every Republican and half the Democrats,” he said. “It died on the calendar that year. I think the push back came from the DOR (Department of Revenue) because of a perceived loss of revenue.”

Formby said “fairness” to both the buyers and sellers motivated his annual bid for a removal of the sales tax.

The big difference this year, he said, “is that my side is now in control.”

Formby said that when he began his effort only a half dozen states assessed sales taxes on interest charges at buy-here-pay-here businesses. By this year, Mississippi was the last state to still levy the taxes, he said.

In addition to exempting finance charges, HB 260 exempts from the contractor’s tax the engineering services performed by a professional engineer who is the general or prime contractor.

The DOR does not have an official estimate on HB260’s cost to the General Fund because it cannot extract the tax amounts from information provided on returns. “However, we believe that it is a significant amount,” said Kathy Waterbury, DOR spokeswoman.

The sales tax on car purchases is 5 percent and 7 percent on other merchandise.

The rule has been that when a seller collects finance charges from a buyer of merchandise, the finance charges become a part of that seller’s “gross proceeds of sales” and subject to tax, Waterbury said.

On the other hand, if a third party is financing the sale, those charges don’t meet the definition of “gross proceeds of sales,” she added.

Clinton car dealer Lester Howell called HB260’s passage as an act of economic fairness. “This was a charge that was actually passed down to lower income people,” said Howell, owner of Professional Car Sales.

Andrew Caldecott, executive director of the 350-member Mississippi Independent Automobile Dealers Association, said scrapping the sales tax on interest will assist businesses that “are providing a service that nobody else would” by financing buyers who otherwise couldn’t get financing.

The problem, Caldecott said, is that many dealers didn’t fully understand the sales tax law. Some sell as few as five cars a month while others may sell 100, he said.

“A lot of them may not have been paying the DOR” and got in trouble when audited, Caldecott added. “Eventually, it got to the point it was coming up more and more frequently.”

Accurately figuring the sales tax became especially difficult once dealers added in late fees and other charges, he said. “It became a real burden.”